H&R Block Hunting for Bank Options Amid Tighter Regulations

Squeezed by new regulations, tax services company H&R Block (HRB) said Wednesday that it is exploring strategic alternatives for H&R Block Bank.

The Kansas City, Mo.-based tax preparer said it has hired Goldman Sachs (GS) to help it explore options and said these plans could potentially result in the savings and loan holding company no longer being regulated by the Federal Reserve.

The move follows a June 2012 announcement by the Federal Reserve of a proposed rule that would impose higher capital requirements on savings and loan holding companies in order to conform to requirements under the Dodd-Frank Act.

If enacted, it would require H&R Block to retain significant additional capital. The world’s largest tax preparer said it believes the regulatory constraints would be inconsistent with its strategic plans, operational needs and growth objectives.

“Evaluating strategic alternatives for H&R Block Bank demonstrates management's continued commitment to deliver on a shareholder-friendly capital allocation strategy," the company’s chief executive, Bill Cobb, said in a statement.

Shares of H&R Block fell more than 5.3% to $16.67 Wednesday morning.

The bank, chartered in 2006, offers low-cost services to lower income families, including pre-paid “Emerald” cards offered through a partnership with MasterCard (MA).

"We are a tax preparation company that offers financial products and related services as an added value to our clients, but operating within the regulatory constraints of these proposed rules would be cumbersome," Cobb said.

H&R Block said it will have the ability to offer existing financial products and related services to clients in fiscal 2013 and does not expect this move to have a material impact on its full-year earnings or ability to provide services to customers during the upcoming tax season.